AP/CD Process: Interacting structure of people, equipment, methods, and controls that is designed to accomplish the following primary functions:
Handle repetitive work routines of the AP Department and cashier by capturing and recording data related to their day-to-day operations
Support decision needs of those who manage the AP department and cashier
Assist in the preparation of internal and external reports
Horizontal perspective of the AP/CD process
Invoice received from vendor
Invoice notice sent to general ledger
Approved voucher sent to cashier and to general ledger
Payment sent to vendor by cashier, paid voucher returned to AP, payment notice to general ledger
Purchase Returns and Allowances
In some cases defective goods may be returned or an allowance made for non-conforming items:
Exception routine usually begins at the point of inspecting and counting the goods or at the point of validating vendor invoices
Purchaser remits a debit memo to the vendor requesting the account adjustment
Vendor responds with credit memo indicating the authorized account adjustment
Processing Non-invoiced Disbursements
Disbursements may not be invoiced, e.g., freight, bills, rent, payroll, etc.
Handling of non-invoiced disbursements depends on whether or not a voucher system is used
Voucher system prepares a voucher for every expenditure from payroll to purchases of raw materials
Logical Data Descriptions for the AP/CD Process:
Includes Previously discussed data stores such as Inventory master data, Vendor master data, PR Master data, PO master data and purchase receipts data. Three additional data stores are:
Purchasing events Data - chronological sequence of the details of each invoice that is recorded
Accounts Payable Master Data - data store for repository of all unpaid vendor invoices
Cash Disbursements Data - chronological sequence of details of each cash payment made
Processing Non invoiced Disbursements - Level 0 Diagram - Page 471 (Assuming a true voucher system is used)
The originating department sends the payment request to initiate the cash disbursements process. A disbursement voucher is prepared and recorded in the purchase event data fileand the general ledger and accounts payable master file are also updated. The check payment process is initiated next with the approved and recorded disbursement voucher. Once the check is cut and signed it is sent to the payee and recorded in the cash disbursements event data file and the general ledger and the accounts payable master file. Finally, a payment notification is sent to the originating department.
Technology Trends and Developments
E-invoicing here is a link that provides some additional information on e-invoicing http://www.vsi.com/deliveryware_solutions/business-e_invoicing.asp E-payments here is a link that provides information from the Federal Trade Commission on e-payments http://www.ftc.gov/bcp/conline/pubs/online/payments.shtm
This is another link that further explains ACH (automated clearinghouse), which is the main method of e-payment. This comes from the website for the Federal Reserve Bank, which processes the majority of ACH transactions: http://www.federalreserve.gov/paymentsystems/fedach/default.htm ERS: Evaluated receipt settlement is a process where the Invoice is completely eliminated. Organization pays for the purchases on the basis of goods received.
AP/CD Fraud
- AP fraud - Usually involves fictitious vendors and false invoices (dishonest employee, human error)
- CD fraud - less sophisticated (check fraud) - Resource losses due to unintentional mistakes and inadvertent errors are as costly as, or more costly than those caused by intentional acts or malfeasance
- Make payments for incorrect or larger amounts
- Pay wrong vendor
- Pay same invoice twice
Independent validation of vendor invoices - providing for the Security of Resources and Vendor Invoice input validity.
Match invoice with purchase order and receiving report - providing for Effectiveness goal A, vendor invoice input accuracy.
Independent authorization to make payment - providing for Security of Resources and Payment input validity.
Reconcile bank account - providing for Security of Resources, payment input validity, and payment input accuracy.
Other Plans for AP/CD Process (Non-EDI Systems)
- Avoid duplicate payment of invoices
- Safeguard blank checks
- Limit time when checks can be cashed
- Use check-protection machine for writing checks
See link above for article relating to internal controls and fraud (www.nasact.org).
AP/CD Process: Interacting structure of people, equipment, methods, and controls that is designed to accomplish the following primary functions:
Horizontal perspective of the AP/CD process
Purchase Returns and Allowances
In some cases defective goods may be returned or an allowance made for non-conforming items:
Processing Non-invoiced Disbursements
Logical Data Descriptions for the AP/CD Process:
Includes Previously discussed data stores such as Inventory master data, Vendor master data, PR Master data, PO master data and purchase receipts data. Three additional data stores are:
Processing Non invoiced Disbursements - Level 0 Diagram - Page 471 (Assuming a true voucher system is used)
The originating department sends the payment request to initiate the cash disbursements process. A disbursement voucher is prepared and recorded in the purchase event data fileand the general ledger and accounts payable master file are also updated. The check payment process is initiated next with the approved and recorded disbursement voucher. Once the check is cut and signed it is sent to the payee and recorded in the cash disbursements event data file and the general ledger and the accounts payable master file. Finally, a payment notification is sent to the originating department.
Technology Trends and Developments
E-invoicing here is a link that provides some additional information on e-invoicing http://www.vsi.com/deliveryware_solutions/business-e_invoicing.asp
E-payments here is a link that provides information from the Federal Trade Commission on e-payments http://www.ftc.gov/bcp/conline/pubs/online/payments.shtm
This is another link that further explains ACH (automated clearinghouse), which is the main method of e-payment. This comes from the website for the Federal Reserve Bank, which processes the majority of ACH transactions: http://www.federalreserve.gov/paymentsystems/fedach/default.htm
ERS: Evaluated receipt settlement is a process where the Invoice is completely eliminated. Organization pays for the purchases on the basis of goods received.
EDI - The AP/AC process is a primary candidate for EDI in major companies and there is an increasing trend for companies to require all vendors to use EDI in their transactions with the company -
Here is a link to some information on EDI http://www.gapent.com/media/white_papers/what_is_EDI.htm
Here is another link on EDI: http://ksi.cpsc.ucalgary.ca/courses/547-95/seanh/edi.html
Alternatives to EDI - XML or IP-based EDI (Internet EDI)
Web-based payment systems
"HCL Imaging Services Launches Web-Based Credit Card Payment System" please click on the following website **http://hcl.harvard.edu/news/2007/imaging_services_credit_cards.html**
Here is a link that provides information on E-business risks: Fraud - http://www.knowledgeleader.com/KnowledgeLeader/Content.nsf/Web+Content/FraudEthicsE-businessrisksFraud!OpenDocument
AP/CD Fraud
- AP fraud - Usually involves fictitious vendors and false invoices (dishonest employee, human error)
- CD fraud - less sophisticated (check fraud)
- Resource losses due to unintentional mistakes and inadvertent errors are as costly as, or more costly than those caused by intentional acts or malfeasance
- Make payments for incorrect or larger amounts
- Pay wrong vendor
- Pay same invoice twice
Here are some very interesting articles related to fraud (AP)- http://findarticles.com/p/articles/mi_m4153/is_n2_v51/ai_15382655
Anyone who has taken Fraud Auditing here at UCF is familiar with Benford's law, which can be used to detect frauds in accounts payable data and in cash disbursements. Here is the AICPA's definition of Benford's law: http://www.aicpa.org/pubs/jofa/may1999/nigrini.htm
Here is an interesting article related to all types of fraud (including AP (paragraph 6.): http://www.knowledgeleader.com/KnowledgeLeader/Content.nsf/content/FraudEthicsRedFlags!OpenDocument
Protecting Enterprise Value through Anti-Fraud Program: http://www.knowledgeleader.com/KnowledgeLeader/Content.nsf/Web+Content/NL_TheBulletin9V2!OpenDocument
Here is another interesting link to internal controls and fraud (even though the article relates to state agencies, the information could be relevant in any organization): http://www.nasact.org/onlineresources/downloads/2005_NASACT/H/cs11_dervaes.pdf
Here is an article about Controls for the AP/CD process: http://www.accountingsoftware411.com/Press/Insider/InsiderArticleView.aspx?iid=1004&docid=8386
Recommended control plans: (pg 486)
Other Plans for AP/CD Process (Non-EDI Systems)
- Avoid duplicate payment of invoices
- Safeguard blank checks
- Limit time when checks can be cashed
- Use check-protection machine for writing checks
See link above for article relating to internal controls and fraud (www.nasact.org).